Helping borrowers purchase the home of their dreams or refinance their existing home often comes down to their credit score. Ads and articles all talk about the

importance of credit scores for obtaining mortgage

loans, but how often do you meet with clients, pull

their credit, and immediately identify possible dif-

ficulties in getting them approved for a loan? Too

often, right?

There are programs out there to help most borrow-

ers improve their credit rating, but there are people

who may not fit the normal lending model — that

no amount of credit repair will help. These scenarios

prove that it is not enough anymore to simply look at

a borrower’s credit score. Originators also must look at

the bigger picture of their credit history.

When underwriters review a credit report, they

analyze overall debt obligations, pay history, recently

opened accounts, new inquiries and high use of

revolving debt, but the automated underwriting sys-

tem, or AUS, plays an important role in qualifying

borrowers, too. It is typically only on manually under-

written loans where an underwriter needs to analyze a

borrower’s credit in more detail.

In these cases, underwriters must ask: Did that bor-

rower have a disregard for financial obligations or an

inability to manage debt? Or, was there a major event

in the life of the borrower that could be considered an

extenuating circumstance?

Extenuating circumstances

Good borrowers with the aptitude for repaying debt

may have a lower credit score because of extenuat-

ing circumstances, which are classified as being “the

result of circumstances beyond the borrower’s

control.” Each agency looks at specific extenuating

circumstance differently, so it is important to review

their guidelines.

Some general examples of extenuating circum-

stances include loss of job, loss of wage earner, or

serious illness. In these situations, borrowers must doc-

ument the events. This can be an overwhelming pro-

cess for some borrowers, which may extend the time it

takes to complete the loan, but originators who help

borrowers gather thorough documentation before

the loan goes to underwriting actually help these

borrowers close on their home more quickly.

One extenuating circumstance originators might

come across are borrowers who lost their jobs and

homes during the mortgage meltdown and had their

credit scores damaged as a result of this financial loss.

Although many people have recovered from the Great

Recession, others have not.

When one of these borrowers comes looking for

a mortgage, do you turn them away or provide the

guidance they need to get back on track? The truth

is, mortgage loan originators should never turn bor-

rowers away outright even if they cannot see a path

to homeownership today for that client. Instead, take

the time to help borrowers get back on their feet by

educating and guiding them on how to improve their

credit and financial circumstances so they can eventu-

ally qualify for a loan.

Changes coming fromthe credit bureausAt a GlanceEquifax, Experian and TransUnion plan to stop re-porting civil judgments and tax liens within con-sumer credit reports, if those judgments or liensare lacking certain information or are not updatedregularly. This change is expected to go into effectJuly 1 of this year and could affect a large number ofconsumers. Judgments and liens often have a neg-ative impact on a borrower’s credit score, so elim-inating incomplete or outdated filings from creditreports may actually boost many borrowers’ creditscores. This is good news for borrowers, but maymake it more difficult for underwriters to evaluaterisk. This could be a hot topic this year.